TheChek News Flow

Putin says there isn’t any reason to panic following currency’s sharp fall

The Russian economy, surprisingly resilient through two-plus years of war and sanctions, has suddenly begun to show serious strains.

The ruble is plunging. Inflation is soaring, and President Vladimir Putin told the Russian people this week that there isn’t any reason to panic.

The catalyst for the change in economic fortunes was a decision by the Biden administration to ratchet up sanctions on Russia’s Gazprombank, the last major unsanctioned bank that Moscow uses to pay soldiers and process trade transactions, as well as more than 50 other financial institutions.

Gazprombank had been carved out of previous rounds of sanctions to allow allies in Europe to pay Russia for critical supplies of energy. It was a vital conduit for inflows of hard currency in exchange for Russia’s exports.

The ruble fell to a 32-month-low this week, and remained near its weakest point since the days after Moscow invaded Ukraine, according to LSEG data, trading for about 108 rubles to the dollar.

The free fall was stopped after Russia’s central bank intervened in currency markets late Wednesday. The bank said it would stop buying foreign currency for the rest of the year, which it does when the government has an oil-and-gas surplus, a move that should help alleviate a critical shortage of hard currency available to businesses and consumers.

Putin said Thursday that “the situation is under control and there are certainly no grounds for panic.” Economy Minister Maxim Reshetnikov said Wednesday that concerns about how the sanctions were affecting Russia’s foreign trade were behind the ruble slump.

The new sanction measures could gum up Russia’s already constrained trade routes with other countries, Russian officials and analysts say.

It is a pivotal time for the nearly three-year-old war. Russia is advancing along the front line, assisted by North Korean troops and Iranian weaponry. President-elect Donald Trump has promised to end the war in Ukraine quickly, leaving the outlook for current and future sanctions on Russia unclear.

In targeting Gazprombank, a state-controlled lender that began as an energy banking hub but has in recent years grown in importance in other cross-border payments, Washington is trying to stifle one of the last major links to the Western financial system.

Russia has traded more in its own currency and so-called friendly currencies, such as China’s yuan and India’s rupee. Russian businesses have also found workarounds by using cryptocurrencies, or by bartering. But access to dollars remains critical.

After the measures were announced, Turkey said it would talk to the U.S. to try to secure a waiver so it can continue paying Gazprombank for natural-gas imports from Russia, its top supplier. Hungary, one of the few European countries still relying on Russian gas, said that it would also look for solutions.

The sanctions on Gazprombank are having a “chilling effect, where traders, exporters and foreign banks are trying to figure out where their liabilities are, so it’s rational there’s a bit of a panic,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, a Washington-based think tank focused on foreign policy. “But we may see in a couple weeks that new routes open up.”

Russia’s economy took a sharp blow in the months after Moscow launched its invasion of Ukraine in February 2022. But heavy government spending and a wholesale reorientation of the economy toward the war effort returned the economy to growth. Huge payouts to soldiers and cheap mortgages helped keep households afloat.

Military spending hit a post-Soviet high this year and is planned to rise to more than $120 billion next year, making up over 30% of total spending for the year.

But the stimulus has had dangerous side effects. Most notably, inflation is running at more than twice the central bank’s target. The bank has jacked up interest rates to 21% this year, which has done little so far to cool the overheating economy. A record labor shortage, as working-age men go to the front, has further fueled inflation.

Now, the plummeting ruble threatens to further increase the cost of imports. Consumer inflation is already running at close to 9% this month, according to official data. An alternate measure compiled by market-research firm Romir found that the average cost for everyday goods and services was up 28% in mid-November compared with last year.

Tatiana Orlova, lead emerging-markets economist at Oxford Economics, expects Russia’s central bank to raise rates to 23% next month. She also expects the government to reimpose capital controls requiring exporters to repatriate more of their foreign-currency earnings, which boosts demand for rubles.

Those efforts, along with a drop in imports after the holidays, might stabilize the ruble’s value. But higher interest rates will start to weigh more heavily on the economy next year, she said, leading to a recession in 2026. Parts of the economy that aren’t being bolstered by government support, such as agriculture and transport, are contracting.

“The economy is probably at a turning point,” Orlova said. “This very tight monetary policy is driving the economy toward recession.”

Few think Russia is on the precipice of a more serious economic crisis, but the difficulties are expected to mount the longer the war persists.

“The policy trade-offs will become more and more challenging,” said Elina Ribakova, nonresident senior fellow at the Peterson Institute for International Economics. Russia is likely to continue eroding its economic prospects by giving priority to the war effort at the expense of healthcare, education and other nonmilitary areas, she said.

Ordinary Russians were rattled by this week’s drop. They still watch the dollar exchange rate closely, and the ruble’s slide past 100 rubles per dollar was a psychologically important threshold for gauging the health of the economy. Against the Chinese yuan, the ruble has fallen nearly 10% this month.

On the social-media app Telegram, which is popular with Russians, a user pleaded: “Please tell me that everything will be okay, I feel sick.”

The Russian central bank’s official account responded, “Everything will be fine.”

Regulatory review in 2022 found fintech lacked proof of address for hundreds of thousands of customers

European regulators rebuked Wise, the London-listed fintech, over its anti-money laundering controls and forced the payments group into a formal remediation plan, according to five people familiar with the matter.

A review by the Belgian National Bank, which supervises Wise in Europe, found in early 2022 that the fintech lacked proof of address for hundreds of thousands of customers, said three of the people.

As a result, Wise devised a remediation plan, approved by the regulator, that required it to contact all of the customers in a matter of weeks to request their proof of address, the three people said. The plan also required it to freeze the accounts of customers who did not provide the documents in time, they added.

The probe highlights the challenges for fast-growing fintechs looking to scale up their anti-financial crime capabilities while balancing user experience with adequate risk controls. Wise, formerly known as TransferWise, allows customers to send fast payments across borders at a cheap rate. Many of its customers use its service to send large sums across borders to buy property. 

Wise said it took “its responsibility to protect its customers and prevent money laundering very seriously”.

“In 2021, the National Bank of Belgium carried out a routine review of Wise Europe as part of a marketwide exercise in the wake of Brexit. We worked closely with our regulator in Belgium and have fully implemented their recommendations.”

The Belgian National Bank declined to comment.

To cope with the scale of the task, Wise moved some of its customer service staff to its anti-financial crime function and experienced a jump in queries from customers, said two people familiar with Wise’s efforts.

“Around a third of our global team is dedicated to fighting financial crime and helping to ensure that we are in compliance with the requirements of the more than 65 regulatory licences that we maintain around the world,” Wise said.

Wise implemented the remediation plan in the weeks that followed Russia’s invasion of Ukraine, which led the EU to put sanctions on many individuals connected to Russian President Vladimir Putin’s regime. One person familiar with the process said that the company had been presented with the findings of the probe before the start of the war.

Later that year, Wise received a $360,000 fine from the United Arab Emirates’ financial regulator over failures in its anti-money laundering controls including its due diligence for high-risk customers.  

In 2023, the UK’s Office of Financial Sanctions Implementation disclosed that Wise had allowed the account of a company owned by an individual on the country’s Russia sanctions list to transfer £250. 

The group also paused the onboarding of its UK and European business customers last year, with then-interim chief executive Harsh Sinha telling the FT that Wise had not anticipated the degree of extra due diligence that would be required following the wave of sanctions stemming from Russia’s invasion of Ukraine.

Wise listed in London in 2021 at a £9bn valuation, a move that was hailed as a vote of confidence in the UK market, which has long struggled to compete with New York as a destination for fast-growing tech companies. 

BHP’s need for copper prompts speculation of fresh Anglo bid

The six-month dealmaking standstill since rejection of the last takeover offer ends today

At Escondida, the world’s largest copper mine, BHP has some problems: ore grades are declining, the rock is getting harder and a $5bn concentrator needs to be replaced. The company will also have to spend as much as $10bn to upgrade the facilities over the next seven years.

The challenges in Chile and a global race for a metal crucial for the energy transition have analysts questioning whether BHP will revive its bid for Anglo American, six months after its initial £39bn takeover attempt failed.

Mike Henry, chief executive of BHP, the world’s largest mining company, has so far been coy about future acquisitions, but is clear that the company wants more copper assets.

“The commodity is so attractive, that we would like to have more by way of future growth,” he told the Financial Times this month.

That hunger drove BHP to spend $2bn for a stake in a copper prospect in Argentina in the summer, raising eyebrows over the price and highlighting strong demand for the metal, which is used in utility grids, wiring and electric vehicles.

The ultimate question is whether BHP’s copper craving will lead to another move for Anglo. Such a deal would create a copper behemoth that controls a tenth of global production, and bolster the Australian company’s growth prospects in copper.

BHP is free to launch another attempt to acquire Anglo from today under London takeover rules that mandate a six-month standstill after withdrawal of the previous offer.

“An approach from BHP is very much still on the cards,” said Marina Calero, an analyst at RBC. “The initial approach was all about copper, and that’s still pretty much the case — Anglo American has a very attractive copper portfolio.”

London-listed Anglo fended off the initial bid and launched its own radical restructuring, which includes disposing of its coal, platinum and nickel assets, as well as the De Beers diamonds business. The plan is already showing signs of success, which could complicate a future bid by BHP.

Anglo, founded in South Africa in 1917, has raised $930mn by selling down its stake in Johannesburg-listed Anglo American Platinum, also known as Amplats, before a planned spinout next year. On Monday, it secured a $3.8bn deal for its remaining Australian coal mines.

The disposal of the coal mines, which happened despite a fire that threatened to derail the process, has strengthened faith in Anglo chief executive Duncan Wanblad and boosted the company’s shares.

Anglo’s share price has risen 18 per cent since early April, before BHP’s first offer, while that of the Australian-based BHP has fallen 11 per cent, making an all-share deal as originally proposed potentially more expensive.

Nevertheless, some analysts and bankers believe that demand for copper and the expense of building new mines mean BHP will probably make another bid.

“The reasons why they had to buy in April are still pretty much all there . . . If anything the case for copper demand has only gotten stronger,” said George Cheveley, a portfolio manager at investment manager Ninety One, who formerly worked at BHP. “They should still do it.”

BHP expects demand for the red metal to increase 70 per cent by 2050, compared to 2021, and for the price to reach $4.5 per pound, the level it uses in internal calculations to assess investment returns, from $4.1 per pound.

As the cost of maintaining production at Escondida and similar mines rises, analysts calculate it will often be more attractive for mining companies to invest capital in buying copper assets, rather than expanding existing ones.

“The capital intensity of the copper projects is going to be higher and higher,” said Chis LaFemina at Jefferies, one of the analysts who attended a recent tour of Escondida hosted by BHP. “I think ‘buy versus build’, still favours ‘buy’,” he added.

Some analysts believe BHP could make a move before Christmas, while others expect it may wait until next year, when Anglo’s restructuring process is further along.

An early move could lead to BHP having to absorb parts of Anglo’s business that it does not want, such as Amplats and the De Beers diamond business.

Preconditions of its first bid included requiring Anglo to sell South African assets such as Kumba Iron Ore. The complicated structure of the proposed transaction, which was vehemently opposed by Anglo’s leadership, ultimately doomed it to failure.

“There’s a very good chance they will just keep their powder dry until they see how Anglo executes [its disposal programme],” said Richard Hatch, mining analyst at Berenberg.

But waiting holds its own risks. BHP might have to contend with rivals who are attracted by Anglo’s streamlined business, or be forced to pay a higher premium as Anglo’s stock gets re-rated.

“Once [Anglo’s management] clean up, they will be an easy target,” said the chief executive of a major mining company.

Glencore, which is already a partner with Anglo in the Collahuasi copper mine in Chile, could be a logical bidder for Anglo, according to bankers.

A potential fall in BHP’s share price, which is closely linked to iron ore prices that are under pressure from the weak Chinese property market, would also make a takeover more expensive.

For Henry, the deal would secure his legacy by reorienting the company towards “future-facing” minerals such as copper and potash. 

Since taking up the top role in January 2020, he has sold off the oil and gas business, and all of BHP’s thermal coal mines. In his second year on the job, he approved the $5.7bn development of Jansen potash mine in Canada, and announced that BHP would move its primary listing from London to Sydney.

BHP bought copper miner Oz Minerals for $6.4bn last year, and this year paid $2bn to acquire a 50 per cent stake in Argentine copper miner Filo.

Last month, Henry went to South Africa where he met government officials alongside chief development officer Catherine Raw, leading to renewed speculation that it was preparing a new bid for Anglo.

But BHP’s top executives have learned the hard way to avoid commenting on whether it will come back to bid for Anglo again.

Last month chair Ken MacKenzie said at the AGM that BHP had “moved on” from its Anglo bid. But the company was forced to issue a clarification to the London stock exchange that same day — making clear his remarks were not intended to rule out another bid.

That option remains on the table.

Donald Trump’s corporate picks raise conflict of interest fears

Business and financial interests will be hard to disentangle from government in new administration, critics charge

Donald Trump’s second administration risks being rife with potential conflicts of interests given the sprawling business and financial interests of several cabinet picks and allies, warn ethics watchdogs and experts.

Trump’s cabinet is shaping up to be one of the wealthiest on record after he tapped a number of financiers and business executives, including nominees Scott Bessent as Treasury secretary, Howard Lutnick to lead the commerce department, and Chris Wright as energy secretary. Elon Musk, the world’s richest man, has also become a close adviser and confidant of the president-elect.

It is not unusual for senior figures from corporate America and Wall Street to join the US government. Hank Paulson of Goldman Sachs was Treasury secretary in George W Bush’s administration, and ExxonMobil head Rex Tillerson served as secretary of state during Trump’s first term.

But critics say the intersection of business interests and government policy during Trump’s second term could be more complex and potentially problematic than in previous administrations, increasing the danger that government ethics standards could be flouted or ignored.

“We are looking at potentially the greatest ethics cataclysm in the history of our government,” said Walter Shaub, the former head of the Office of Government Ethics, a federal agency. “There is no reason to believe that these potential conflicts of interest are going to be resolved.”

Brian Hughes, a Trump transition spokesperson, insisted the incoming administration would abide by the rules. “All nominees and appointees will comply with the ethical obligations of their respective agencies,” he told the Financial Times.

Trump’s transition team on Tuesday announced it had signed — several weeks late — an agreement with the Biden White House that included an “ethics plan for those involved, which will meet the requirements for personnel to seamlessly move into the Trump Administration”.

Lutnick has said he would “divest my interests in these companies to comply with government ethics rules and do not expect any arrangement which involves selling shares in the open market”.

Bessent, a hedge fund manager and founder of Key Square Group, and Wright, chief executive of Liberty Energy, did not respond to a request for comment.

Trump’s transition team declined to say whether nominees had submitted a financial disclosure form to the OGE — which is required for all cabinet members and which would start the process of reaching an agreement on any necessary recusals and divestments.

There are fears the business and financial interests of Trump’s nominees are so vast it will be very difficult to disentangle them from government affairs.

These are compounded with concerns the Department of Justice under Trump will choose not to prosecute any violations of conflict of interest laws. The president-elect has called for the prosecution of his political opponents, leaving some legal experts fearing for the department’s independence.

Daniel Weiner, director of the Brennan Center for Justice’s elections and government programme, said: “The concern is not necessarily with people’s backgrounds, I think it’s more with is this administration going to take conflicts of interest and avoiding conflicts of interest seriously.”

If confirmed, Bessent, Lutnick and Wright will have critical roles shepherding the country’s economic, trade and energy policies in areas Trump has pledged to make major changes — including tax cuts, sweeping tariffs, and deregulation — that will have a broad impact on businesses and markets around the world.

Archon Fung, a professor at the Harvard Kennedy School, said the worry with nominees who are businesspeople is that “because of their experience in the industry, they’ll be either beholden to a . . . web of relationships there that will affect their judgment about what the public interests require” or “they’ll have completely absorbed a particular point of view, rather than the diverse points of view about what would be good . . . policy”.

Musk’s role as co-chair of Trump’s proposed “department of government efficiency”, or Doge, is expected to face particular scrutiny. The billionaire owns X, the social media company as well as Tesla, the electric-car maker and SpaceX, the space exploration group.

Trump has tasked him with slashing government spending and increasing the productivity of federal agencies — including some that have multibillion-dollar contracts with the tycoon’s businesses.

He has previously railed against government agencies including the Securities and Exchange Commission and the Federal Aviation Administration, which he sees as having hamstrung his businesses. Tesla, from which Musk derives most of his wealth, has also clashed with the Environmental Protection Agency.

Because Doge would be an independent body, Musk is not subject to the same ethical rules and laws as federal officials, but his heavy involvement in government policy is triggering concern over potential conflicts of interest.

Kathleen Clark, a law professor at Washington University in Missouri, said: “This Musk venture is simply an attempt to do an end run around government ethics laws while also being able to exert a huge amount of governmental power.”

Musk did not immediately respond to a request for comment.

The divestments that may be required for Trump’s nominees to comply with ethics standards will not necessarily be a financial blow — and may even be beneficial. If nominees are forced to sell financial assets, the government gives them a “certificate of divestiture” that allows them to defer capital gains taxes indefinitely.

The deferral can be lucrative if Congress adopts lower taxes — as Trump has considered — and nominees ultimately sell their investments at a lower tax rate in the future. Democrats have attacked this tax provision as a gift to the president-elect’s wealthy nominees.

“Donald Trump is stocking up his cabinet with billionaires again, offering them a special tax break just for signing up,” said senator Elizabeth Warren. “These nominees should commit to not use loopholes to avoid paying taxes as a result of their government service.”

John Paulson, the financier and top Trump donor, appears to have chosen to avoid the issue entirely. Shortly after the election, he said he would not serve in the new administration because of his “complex financial obligations”.

Jordan Libowitz, vice-president of communications at the Citizens for Responsibility and Ethics in Washington, said Paulson’s withdrawal “gives us heart that they are having these conversations, and they are planning on following the rules”.

But he added: “The question I’ve been getting a lot in the last couple of days is what if Trump installs loyalists and tells them not to enforce the law? That is a scary question, up and down line. And the answer is, we don’t know.”

Prius-style hybrids could be sold after 2030 in loosening of UK’s EV rules

Ministers explore ways to water down Britain’s sales mandate after car industry warns on jobs

Summary

• Prius-style hybrids may be permitted until 2035
• Ministers explore loosening UK electric vehicle sales mandate
• Changed rules will offer greater flexibiltiy for carmakers

Carmakers may be permitted to sell Prius-style hybrid models in the UK until 2035, as ministers consider ways to water down the country’s electric vehicle sales regime, according to people with knowledge of the discussions. 

A fast-tracked consultation launched this week will include a long-expected decision on what types of vehicles carmakers can sell after a 2030 ban on new petrol and diesel cars comes into force, the people said.

Transport secretary Louise Haigh is “open to” allowing the sale of “full hybrid” models that use an engine and battery in parallel, according to multiple people in government and industry.

This technology, pioneered by the Toyota Prius and now commonly used by several brands, cuts a vehicle’s overall emissions significantly but does not allow cars to drive for an extended time using battery power alone.

Unlike “plug-in hybrids”, which have larger batteries, “full hybrids” do not plug in to recharge.

A decision to allow these cars to be sold after 2030 would be welcomed by the industry, which has called for an overhaul of the current scheme because sales of pure-electric vehicle remain stubbornly lower than had been expected.

Allowing sales of full hybrids to continue after 2030 would be a “break glass in case of emergency” situation, according to one government figure who did not rule it out as an eventual possibility.

But electric vehicle advocates and some ministers believe allowing “full hybrid” sales would deter people from buying an EV.

The consultation is expected to lead to the government giving carmakers greater flexibility on several other areas of the UK’s electric vehicle sales mandate.

Two existing flexibilities that will be expanded or extended are the “trading” loophole that allows carmakers to buy credits from rivals to avoid fines, and another under which they can miss early targets but avoid fines by pledging to overachieve in future years.

“We will go gangbusters on flexibility,” said one government figure. 

The current scheme requires a certain percentage of each carmakers’ annual sales to be zero-emission vehicles, with the percentage annually rising from 22 per cent this year to 80 per cent in 2030. Companies face fines of £15,000 for each missed vehicle. 

The scheme, called the “ZEV mandate”, has come under significant criticism from the industry, which has warned that pushing too fast will cost jobs.

Stellantis blamed the “ZEV mandate” on Tuesday as it announced plans to shut its van factory in Luton, putting 1,100 jobs at risk. Ford has also announced 800 job cuts in the UK because of weak EV sales, while Nissan has warned about manufacturing job losses unless the scheme is weakened.

Electric vehicles accounted for 18 per cent of sales between January and October — below the 22 per cent threshold — while full hybrid sales made up 13.5 per cent, and plug-in hybrids were 8.4 per cent, according to sales data from the Society of Motor Manufacturers and Traders.

A decision in favour of hybrids would boost Toyota, Honda, Hyundai, Nissan and Kia, which all have strong sales of the petrol-electric vehicles. 

The consultation will include “open-ended” questions over what types of hybrid should be allowed in that five-year period and — crucially — whether they will have to be plug-in hybrid cars.

Some cars are marketed as “mild hybrids” because they contain 48-volt batteries that do not drive the vehicles, but they are not classed by the industry as hybrids.

Carmakers have struggled to meet the ZEV mandate without buying credits from rivals that are ahead on the electric transition, or that only sell EVs such as Tesla. Companies are also given credit for significant reductions in their own overall carbon emissions, which has benefited brands that sell large numbers of hybrids.

Do the billionaire’s longstanding ties to Beijing represent a diplomatic opportunity or a clash of political and business interests?

Donald Trump is set to begin his second term in the White House surrounded by China hawks.

His pick for secretary of state, Marco Rubio, has campaigned against Chinese influence and championed crackdowns on tech groups such as Huawei. Michael Waltz, the incoming national security adviser, calls China an “existential threat”.

However, one of the president-elect’s closest advisers has a much more complicated relationship with China: Elon Musk.

The South Africa-born billionaire and self-styled “first buddy” to Trump has emerged as a potentially significant yet unpredictable player in the relationship between the world’s two superpowers.

Musk’s business empire sits across a minefield of possible conflicts on issues of national security, tech competition, supply chains and free speech, as well as the future of Taiwan. 

The world’s richest man has deep connections to top Chinese Communist party leaders, and is in the middle of lobbying Beijing over important decisions for his $1tn electric vehicle business, Tesla.

Tesla has received billions of dollars in cheap loans, subsidies and tax breaks from the Chinese government. The carmaker is highly dependent on its Shanghai factory, the biggest in its global network, for not only selling to the country of 1.4bn people but also exporting its China-made cars to other parts of the world. Musk’s Chinese suppliers, especially in batteries, are also crucial to the company’s global manufacturing operations, including in the US.

But the administration Musk is to join as efficiency tsar seems ready to follow through on Trump’s campaign threat of a sharp increase in tariffs on all Chinese imports into the US, a decision that could dramatically impact Tesla’s business.

Musk could potentially provide a “critical bridge” between China and the Trump administration, says Philippe Houchois, an analyst with US investment bank Jefferies.

There are already signs that Musk’s influence may extend to America’s relations abroad, such as his presence on a post-election phone call between Trump and Ukrainian leader Volodymyr Zelenskyy.

Given the stakes for Tesla, the entrepreneur might be expected to act as a “moderating influence” on Trump’s planned tariffs, Houchois adds — and “how much or [for] how long markets ignore potential conflicts of interests ranging from political responsibilities to governance and compensation, is unclear”.

There is clear evidence of political pressure over Musk’s potential conflicts. Two Democratic senators have sought a federal investigation into Musk’s reported communication with Russian leader Vladimir Putin, raising concern over Musk’s high-level security clearances and billions of dollars in US government funding.

While there is a long history of businessmen acting as middle men between Beijing and Washington, few, if any, have had more at stake than Musk. Other parts of his empire run directly into points of tension between the US and China. SpaceX, his commercial rocket and satellite business, has drawn sharp criticism from Chinese military analysts who see the company and its vast network of Starlink satellites as part of the American military’s expansion into space. And X, the social media platform, is banned in China. 

Yaqiu Wang, research director for China at Freedom House, a US-based advocacy group, warns that Beijing has become “very deft” at manipulating foreign business leaders — including leveraging their companies’ access to the country — to compel them to “toe” the Communist party line, she warns.

“Musk is not only vulnerable to Beijing’s pressure given his extensive business interests in China, he also seems to genuinely enjoy close relationships with China’s authoritarian leaders,” she says. “This dynamic creates ample opportunities for the CCP to influence Trump’s China policy.”

Five years ago, Musk secured funding for what was at the time Tesla’s most ambitious project, a factory building electric vehicles in a special free trade zone on Shanghai’s eastern outskirts.

The prospect of facilitating the loan sparked fierce competition among Chinese banks. Some lobbied the Ministry of Industry and Information Technology, one of Tesla’s regulators in Beijing, to be added to the list of approved lenders. From the bankers’ point of view, the deal was not only financially failproof, but it was also an opportunity to demonstrate alignment with Beijing’s supportive green industrial policy.

In the end, loans totalling nearly $1.4bn came from a consortium of some of the country’s biggest state-owned lenders: China Construction Bank, Agricultural Bank of China, Industrial and Commercial Bank of China and Shanghai Pudong Development Bank. The interest rate on the debt was pegged at 90 per cent of China’s one-year benchmark interest rate, a discount that state lenders usually offer to their best clients, almost always other Chinese groups. 

The special treatment went further. Musk successfully convinced CCP leaders including Li Qiang, then the Shanghai party boss and now China’s premier and number two ranked leader, that Tesla needed to own its China business outright. For the auto industry this marked an unprecedented change from Beijing, which had always required joint ventures between foreign and local Chinese carmakers.

“Everybody knew it was the number one project for Shanghai, even for China, that year,” says a Shanghai-based credit officer involved in the deal. “With full support from the government, there’s no way for us to record any losses. No deals are better than that.” 

The land for Tesla’s factory has been leased from the Shanghai government for 50 years. The company, which did not respond to questions from the FT, has not disclosed the price tag. In 2018, the Shanghai Municipal Bureau of Planning and Land Resources said a plot of land was leased for Rmb973mn ($145mn), well below market prices at the time. According to Tesla, the company has met requirements set by Shanghai to spend Rmb14bn on the plant by 2023 and received additional grant funding of $76mn from the city government the year before.

One Beijing-based government policy adviser described Tesla to the Financial Times as probably still one of the “most subsidised EV makers in China”. 

The relationship has been mutually beneficial.

For Musk, the Shanghai factory is Tesla’s biggest, producing millions of cars and delivering revenues of $54bn over the past three years — accounting for 23 per cent of its total sales. Tesla has also said its new adjacent factory, building battery packs for electricity storage, is on track to start production in the first quarter of 2025. 

“He is very pro-China, always has been,” says one former senior Tesla executive who worked closely with Musk for more than a decade. “The perception that China is trying to screw the US, that is not shared by Tesla.” 

For China, the project delivers hundreds of millions in taxes annually, at a time of slowing economic growth. Tesla also paid back its chief loan in 2021.

But more importantly to Xi Jinping’s economic planners, the rapid delivery of Tesla’s high-tech factory helped turbocharge the nation’s nascent electric vehicle industry, both in terms of the local supply chain and popularising the EV among retail consumers. 

Chinese policymakers had “dreamed for 20 years” of a domestic auto industry but the “inflection point was Tesla’s launch in Shanghai”, says Bill Russo, the former head of Chrysler in China and founder of Shanghai-based consultancy Automobility. 

“Just like the iPhone unleashed a host of Chinese smartphone companies, the Tesla Model 3, initially, unleashed the Chinese EV wave,” Russo says.

Over the past five years, Tesla’s global operations have deepened their reliance on Chinese suppliers, whose scale, efficiency and levels of automation have become world-leading. 

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With Trump warning of massive tariffs against imports from Mexico and all of America’s trading partners, Musk has already moved quickly to protect Tesla by ramping up production in the US and pausing plans to build a factory in Mexico, which would partly make cars for the US market. But even then his company remains deeply exposed to American protectionism. 

Tina Hou, who leads China auto research for Goldman Sachs, estimates that more than 90 per cent of Tesla’s suppliers for the Shanghai factory are Chinese and when Tesla builds factories overseas these suppliers increasingly “go out” with Tesla. According to Mexican officials, dozens of Tesla suppliers have set up operations in Mexico, including Chinese groups. Musk is also working with its Chinese battery supplier CATL for technology at Tesla’s Nevada battery factory.

In late April, Musk made his most recent China visit, meeting Premier Li and other leaders in Beijing, as part of an effort to ease concerns among Chinese regulators over the national security risk posed by cars that collect and process data related to Chinese drivers and their surroundings. 

Steve Orlins, president of the National Committee on US-China Relations, says one measure of Musk’s strong understanding of the Chinese system is the decision — following Musk’s April trip — to overturn a ban on the use of Teslas on Chinese government properties.

“How many US companies have succeeded in getting bans rescinded? Those guys, whether it’s Musk or his operating team, somebody gets the system. Because that, in my experience, is pretty rare and remarkable,” says Orlins. 

Still, the future success of Musk’s business in China hinges on obtaining — and maintaining — regulatory approval for his FSD platform, the company’s semi-autonomous driving software.

Musk believes his pivot to autonomous driving and artificial intelligence could boost Tesla’s market valuation as high as $5tn, five times higher than today. But he is also racing against a clutch of rival Chinese carmakers and tech groups, from BYD, Xpeng and Nio to Baidu, Xiaomi and Huawei, who are all developing similar technologies. 

Now, given Musk’s newfound access to the White House, a key question, according to auto industry insiders, is whether Beijing could use Tesla as leverage when negotiating with Trump — both in terms of Tesla’s FSD approvals and access to supplies of key components. 

“Tesla is looking for a solution on FSD so that could be part of the discussions on tariffs: we give you FSD, you negotiate on tariffs,” says one analyst at a US brokerage, who asked not to be named.

An executive at a rival automaker adds: “Tesla is hugely dependent on China for profitability and Musk has direct contact with the CCP leadership. It’s inevitable that he will be a piece of the puzzle.” 

Among Chinese consumers, Tesla’s rapid global success coupled with an admiration for maverick entrepreneurship has garnered Musk a cult following, and the nickname “the Silicon Valley ironman”. He has met Xi, the powerful Chinese leader, at least twice.

Maye Musk, the billionaire’s modelling mother, has also built a strong public profile in China with more than half a million followers on Xiaohongshu, China’s Instagram-like platform.

And yet among defence officials in Beijing, Musk’s business empire poses several questions of national security, placing Musk in conflict with the absolute priority of Xi and his leadership. 

A January commentary published by two authors from the People’s Liberation Army’s premier research group, the Academy of Military Sciences’ War Research Institute, described SpaceX as having “a clear military focus” and “strategic intentions” that would help the US gain a competitive edge in the space arms race.

“Its high-density deployment severely threatens the security of other countries’ space assets and affects the normal operation of their satellites,” they said.

The researchers added: “Starshield satellites could undertake kamikaze-style attacks on spacecraft and be equipped with weapons payloads to carry out space strikes, posing threats to space security,” referring to the version of the Starlink satellite network that is devoted to American national security applications.

Musk told the FT in an interview in 2022 that Beijing has made clear its disapproval of his deployment of the Starlink network to help fortify the Ukrainian internet after the 2022 full-scale invasion.

There are also signs that Musk’s personal views clash with others in Trump’s close orbit who want the US to push back harder against Beijing’s increased military assertiveness, including over Taiwan.

In speeches and interviews over recent years Musk has talked about his strong understanding of Chinese policy and his expectation of looming conflict over democratic Taiwan, which the CCP claims as part of China.

“There will come a point in the not too distant future where China’s military strength in that region far exceeds US military strength in that region,” Musk told the All-In Summit held in Los Angeles last year. 

There will come a point in the not too distant future where China’s military strength in that region far exceeds US military strength

“And if one is to take China’s policy literally, and probably one should, then force will be used to incorporate Taiwan into China. This is what they’ve said. If there is not a diplomatic solution, there will be a solution by force,” he said at the time.

Musk, according to the former Tesla executive, is trying to reduce tensions between countries and not inflame them further, but “at the same time” has to protect his business. 

Tesla is more worried about Taiwan than tariffs, the former executive says, adding that Musk has been working to “mitigate” the impact of an embargo on China by rejigging his company’s supply chain away from Taiwan.

“That has been true since it became clear to Elon that Taiwan to China is like Ukraine is to Russia and [there is] nothing you can do to stop that inevitable outcome. Maybe that is cynical, but that is a geopolitical reality.”

Musk’s ownership of social media platform X raises further questions over the billionaire’s interactions with China and inconsistency on free speech. 

Wang, of Freedom House, says that Musk’s claim that he is a “free speech absolutist”, made when he bought the social media platform in 2022, has been proved a “complete sham” by his acceptance of Chinese censorship and attacks on critics.

She adds that despite “all the problems” with X, the platform is still used by people inside China as a way to circumvent the Chinese state’s draconian censorship and internet controls.  

“It’s unclear whether the Chinese government has requested account information of X users who express critical views of the CCP and whether X has handed over such information. Given Musk’s cosiness with Beijing, his lack of principle on free speech and privacy rights, his penchant for authoritarian rule, this should really be a concern,” Wang says. 

For Beijing, after years of ties with Washington at a historic low, the prospect of having an ally like Musk influencing the White House is a definite positive. 

Henry Huiyao Wang, a former senior government official and the founder and president of the Beijing-based Center for China and Globalization, says that while Beijing is “preparing for the worst” there remains hope that Trump, with the support of American billionaires like Musk, can be “more pragmatic” and US-China tensions can be dialled back.

Musk may also have to navigate pressure on his own China links from other corners of Washington. Rubio, for example, in August co-signed a letter alleging that CATL, Tesla’s main battery supplier in China and with whom it is working in the US, has “deep ties” to the CCP and the PLA and was actively involved in bolstering Beijing’s military ambitions — accusations that CATL has denied.  

Ultimately, when it comes to influencing Trump on China there will be a “jumble” of views competing for the president’s ear, says Andrew Gilholm, head of China analysis at consultancy Control Risks.

On the one hand, there will still be traditional Wall Street titans and tech leaders who are seen as Beijing-friendly and “don’t want to rock the boat with China”. And on the other hand, there are hawks, such as Rubio, who “are ideologically anti-China and want to hammer China on all fronts”. 

And then there is Musk. “Individuals will matter,” Gilholm says. “Musk is a wild card — his interests conflict.”

NATO warships surround Yi Peng 3, a Chinese bulk carrier at the center of an international probe into suspected sabotage

A Chinese commercial vessel that has been surrounded by European warships in international waters for a week is central to an investigation of suspected sabotage that threatens to test the limits of maritime law—and heighten tensions between Beijing and European capitals.

Investigators suspect that the crew of the Yi Peng 3 bulk carrier—225 meters long, 32 meters wide and loaded with Russian fertilizer—deliberately severed two critical data cables last week as its anchor was dragged along the Baltic seabed for over 100 miles.

Their probe now centers on whether the captain of the Chinese-owned ship, which departed the Russian Baltic port of Ust-Luga on Nov. 15, was induced by Russian intelligence to carry out the sabotage. It would be the latest in a series of attacks on Europe’s critical infrastructure that law-enforcement and intelligence officials say have been orchestrated by Russia.

“It’s extremely unlikely that the captain would not have noticed that his ship dropped and dragged its anchor, losing speed for hours and cutting cables on the way,” said a senior European investigator involved in the case.

The ship’s Chinese owner, Ningbo Yipeng Shipping, is cooperating with the investigation and has allowed the vessel to be stopped in international waters, according to people familiar with the probe. The company declined to comment.

The damage to undersea cables occurred in Swedish waters on Nov. 17-18, prompting that country’s authorities to open a sabotage investigation. Russia has denied wrongdoing.

Investigators have established that the ship dropped anchor but remained under way in Swedish waters on Nov. 17. The dragging anchor cut the first cable between Sweden and Lithuania shortly afterward, according to two people familiar with the investigation. The company that operates the cable in Lithuania said the outage took place at around 10 a.m. local time.

During that time, the ship’s transponder, which charts its movements on the so-called Automatic Identification System, shut down in what is known as a “dark incident” in marine traffic jargon. The ship then continued even as the dragging anchor greatly reduced its speed, according to satellite and other data reviewed by investigators.

Investigators say that at around 3 a.m. the following day, having traveled about 111 miles, the Yi Peng 3 cut the second cable between Germany and Finland. Shortly afterward, the ship started zigzagging, raised anchor and continued. Danish Navy ships then set out to pursue and intercept the Yi Peng 3, ultimately forcing it to anchor in the Kattegat Strait, which connects the Baltic and the North seas.

A review of the vessel’s anchor and hull showed damage consistent with having dragged its anchor and severed cables, people familiar with the investigation said.

“Given the mild weather conditions and manageable wave heights, the likelihood of accidental anchor dragging appears minimal,” according to an analysis prepared for The Wall Street Journal by Kpler, an analytics company that provides real-time data on international shipping.

While such incidents have been handled confidentially in the past, the damage to the internet cables last week quickly prompted public interventions from top European leaders.

The crew of Yi Peng 3, which is captained by a Chinese national and includes a Russian sailor, hasn’t so far been questioned, according to people familiar with the probe, but a member of a Danish pilot ship briefly boarded the ship before it was anchored in the Kattegat Strait.

Several Western law-enforcement and intelligence officials said they didn’t think the Chinese government was involved in the incident but that they suspected Russian intelligence agencies were behind the sabotage.

“These are absurd, unsubstantiated accusations,” the Kremlin press office told the Journal. The same Western officials who point fingers at Russia were silent when Ukraine blew up the Nord Stream gas pipelines, the press office said in reference to the 2022 sabotage of the conduit for Russian gas to Europe.

“I would like to reiterate China’s consistent support working with all countries to maintain the security of international submarine cables and other infrastructure in accordance with international law,” Chinese Foreign Ministry spokesperson Mao Ning told reporters on Wednesday.

The Chinese bulk carrier is now guarded by a small flotilla of North Atlantic Treaty Organization ships belonging to Denmark, Germany and Sweden.

Previously neutral, Sweden is one of the newest members of NATO, having joined the military alliance in the wake of Russia’s full-scale invasion of Ukraine in 2022.

Under international maritime law, NATO ships can’t force the Yi Peng 3 to sail into one of their ports. Swedish and German authorities are negotiating with the ship’s owner to obtain access to the vessel and question its crew.

German police also dispatched the Bamberg, a patrol vessel, to investigate one of the incidents with underwater drones. Swedish and Danish ships have also examined the sites on the seabed.

European authorities must tread carefully because of their commitment to the freedom of navigation and upholding international law that underpins global trade, according to several European politicians, as well as security and law-enforcement officials familiar with the probe.

Since the launch of its full-scale invasion of Ukraine, the Kremlin has been accused by Western officials of waging a shadow war on NATO territory in Europe to destabilize the West, including orchestrating attacks on undersea pipelines and data cables in the Baltic and the Arctic.

In October last year, a Chinese-registered vessel called Newnew Polar Bear cut the Balticconnector gas pipeline and a telecommunication cable connecting Finland and Estonia with its anchor, according to people familiar with the investigation into the case. Some officials briefed on the investigation said Russian sailors were aboard the Chinese ship at the time of that incident.

Newnew Polar Bear was allowed to proceed toward Arctic Russia because authorities in Sweden, Denmark and Norway didn’t want to halt the ship without sound legal backing, according to officials.

But in the case of Yi Peng 3, the Danish Navy decided to intervene quickly to stop the ship after the second cable was damaged, people familiar with the investigation said.

Yi Peng 3 had operated solely in Chinese waters from December 2019 through early March 2024, when it suddenly changed its pattern of operation, said Benjamin L. Schmitt, senior fellow at the University of Pennsylvania’s Kleinman Center for Energy Policy.

The Chinese ship then started carrying Russian coal and other cargo, making calls in Russian ports such as Nakhodka on the Sea of Japan, several trips to the Port of Murmansk in the Barents Sea and a trip to the Baltic Sea. At present, the ship is loaded with Russian fertilizers, according to Kpler data.

“While this alone is not enough to provide evidence of Russian involvement, the fundamental change in the ship’s operating region to Russian ports after years operating solely in Chinese waters should be a key area of investigation for European authorities,” Schmitt said.

The cable connecting Sweden and Lithuania was repaired on Nov. 28, said a spokesman for Arelion, the company that operates it.

QIA to hold 30% of racing venture that has taken over Sauber as Gulf interest in sport grows

Qatar’s sovereign wealth fund has agreed to buy roughly 30 per cent of the Audi Formula One racing team, as institutional investors continue to pile money into the global racing series and wider sport.

The Qatar Investment Authority would get the minority stake in exchange for a capital injection worth “hundreds of millions” of dollars, said a person familiar with the deal.

QIA controls 17 per cent of the voting rights in Audi’s parent company, Volkswagen. While the Gulf fund has not invested in automotive racing previously, it has gained increasing interest in the business of sports, the person added.

The deal is expected to be announced on Friday, the first day of the Qatar Grand Prix weekend to be held at Doha’s Lusail International Circuit.

The planned purchase would increase the Gulf’s presence in the sport. Abu Dhabi, Bahrain and Saudi Arabia also host grands prix events. Qatar Airways is F1’s global airline partner following a deal last year, while Doha joined the calendar in 2021.

Last year QIA bought a minority stake in Washington-based company Monumental Sports and Entertainment, which owns franchises and venues that include the Washington Wizards basketball team.

Audi agreed in March to buy 100 per cent of the Sauber Group. It will join the F1 tour as an engine supplier in 2026, when a suite of new regulations is set to revamp the event, with all-new cars and engines running on sustainable fuels and a greater electrical component.

Switzerland-based Sauber, which previously competed with Alfa Romeo, signed as Audi’s “works team” in 2022. Sauber is making Audi’s race cars, as well as handling race operations.

But Sauber is in 10th place in the constructors’ standings, sitting at the bottom of the table with zero points. QIA’s investment in Audi’s F1 team was aimed at boosting engineering and technology of the car, the person familiar with the deal said.

Sauber and QIA declined to comment. Audi did not immediately respond to a request for comment. Sky News first reported the news.

QIA’s move follows a number of major investments in F1. Liberty Media, the US media group controlled by tycoon John Malone, acquired F1 itself in an $8bn deal in 2017, in what was a new era following decades of domination by former supremo Bernie Ecclestone.

Liberty Media was behind the Drive to Survive Netflix series that introduced F1 to new fans, attracting younger audiences to the sport.

Under US ownership, F1 has embraced social media and focused on big personalities, including drivers such as Lando Norris and Max Verstappen.

Liberty Media was also instrumental in introducing new regulations that limited how much teams could spend on developing their cars. The budget cap has helped to attract new investors, and helped F1 teams to shed their reputation for being money pits.

Sir Jim Ratcliffe’s Ineos owns a third of the Mercedes F1 team, MSP Sports Capital is among the investors with a minority stake in McLaren Racing, and private equity group Arctos Partners owns a minority stake in Aston Martin F1. RedBird Capital Partners and spin-off Otro Capital were among the buyers of a 24 per cent stake in Alpine last year.

Called as witness, Bernard Arnault insists he had no knowledge of illegal efforts to infiltrate activists’ group

LVMH chief executive Bernard Arnault has shifted any blame on to his late number two for allegedly approving spying on leftwing activists, in a much-anticipated court appearance.

Testifying as a witness for nearly three hours, Arnault defended the decision to pay €10mn to settle, without admission of guilt, any allegations the group faced to “avoid a media circus”. He accused the activists’ leader François Ruffin, now a prominent leftwing MP, of using the trial for political reasons.

“Mr Ruffin is interested in showing off on my back, and unfortunately it hasn’t worked for him,” Arnault told the court on Thursday.

Arnault, 75, was asked to testify as part of the trial of a former security contractor, Bernard Squarcini, who is accused of illegally spying on Ruffin’s group of activists. Many of the alleged offences took place between 2013 and 2016, when Squarcini, a former chief of France’s intelligence agencies, worked for LVMH.

Some of the issues between the parties reflect wider debates in France. Ruffin made a documentary in 2016 called Merci, Patron (Thanks, Boss!) that highlighted the plight of workers who had been laid off when an LVMH subcontractor shut down a factory. The film heightened anxiety within LVMH about Ruffin and his group, something Squarcini was allegedly tasked with helping to control.

Arnault insisted on Thursday that he had delegated the matter to his second-in-command Pierre Godé, who died in 2018. “Godé had full responsibility equal to mine . . . It is not for me to judge what Mr Godé did or did not do as I was not aware,” he said. “I had a manager who was in charge of all that, and we shouldn’t need to do the work twice.”

Squarcini has denied all wrongdoing, arguing that protecting Arnault was a matter of “national interest”.

The testimony became fractious when lawyers for Ruffin, who is a civil party in the case, questioned Arnault about Squarcini’s efforts to infiltrate the activists, who had intended to confront Arnault about job losses at the 2023 annual general meeting of the group, which owns brands including Louis Vuitton and Dior. 

Arnault, one of the world’s wealthiest men, argued that the economic benefits and employment his company had created far outweighed those job losses. Ruffin was motivated by an “ideology” that will always cast capitalism and companies in a negative light, he said.

The luxury mogul advised Ruffin to pick a “more concise” lawyer, refused to answer some questions he called “nonsense” and threatened another civil party lawyer with a defamation suit for raising “rumours” about his private life.

“In terms of employment I have done much more than Mr Ruffin in parliament,” he said. “He doesn’t go there very often from what I hear . . . Is it normal for Mr Ruffin to mess around with justice to promote a new book or film?”